In Cyprus, The Economic Misery Is Just Beginning To Sink In

The deal has been struck, and now, Cypriots say, the betrayal is
sinking in. Nick Squires reports on how the islanders are goin to
need the luck of the gods to avoid plunging off an economic
cliff.

As she counts another day's paltry takings and frets about how to
pay the rent, Dimitra Charilaou knows she is a tiny cog in the
machine that drives Cyprus's once thriving economy.

She owns a small hole-in-the-wall electrical supplies shop
squeezed between a kebab joint and a dodgy-looking nightclub
adorned with photos of blonde East European women in the old town
of Nicosia, the island's capital.

But multiply her predicament by 850,000 – the population of this
former British colony - and it is clear that the island that
claims to be the birthplace of Aphrodite, and which has streets
named after Greek heroes like Odysseus, is going to need the luck
of the gods to avoid plunging off an economic cliff in the wake
of last week's controversial bailout deal.

Picking out a €10 note from her cash till, Mrs Charilaou, 59,
told The Sunday Telegraph: "This is what I've earned
today. My rent is €500 a month, how am I going to pay it? The
retail business is bleeding, everybody is shutting down.

"Today it's Cyprus, tomorrow it will be Italy. It will be a
domino effect. We use to live peacefully, we had jobs. Now they
have changed our lives."

Last week the sun shone over Nicosia, whose old town is a tangled
warren of narrow lanes, Byzantine churches and colonial bungalows
with wooden verandas.

But dark economic clouds are looming over Cyprus in the wake of
the bail-out struck with Brussels, in which the country's two
biggest banks are to be restructured and depositors hit with a
"levy" of up to 80 per cent of their savings above €100,000.

In a move that was seen to have crossed the Rubicon regarding the
guarantee of savings within the eurozone, customers have had
their accounts frozen; exactly when their money will be
confiscated in the "haircut", as it is euphemistically known, is
expected to be announced this week.

So far there has been none of the violence that has hit
neighbouring Greece, where masked protesters hurling stones have
frequently clashed with riot police shooting tear gas in cities
like Athens and Thessaloniki.

Conventional wisdom has it that Cypriots are more restrained than
their Greek cousins – calmer and more "British" in fact,
reflecting their 80-year history as one of the strategic
lynchpins of the Empire, before they gained independence in 1960.

But there are fears that all that could change and that some
Cypriots could suddenly snap when they realise just how grim
their future looks, as the financial and banking sector withers,
the economy contracts by up to a quarter and unemployment soars
to 25 per cent.

"I wouldn't be surprised if someone took a gun and went after
whoever is responsible for all this," said Marios Georgiou, a
45-year-old civil servant who stands to lose 40 to 50 per cent of
his savings, held in the two banks targeted in the bail-out,
Laiki and Bank
of Cyprus.

"I ask you, is this fair? Is this legal? It cannot be. People
can't believe it. We have been in a struggle with the Turks for
40 years, but it took the EU just one day to come here and take
all our money."

Sipping a coffee at a bar between tourist boutiques selling
postcards and sunglasses, Kyriacos Loizides, 53, a businessman,
said: "Next week there will be huge demonstrations. I think there
will be violence and killings. People will take revenge against
the people who created this scandal, this tragedy.

"Cyprus will become like Greece, where people throw yoghurt and
tomatoes at politicians whenever they see them. We feel that soon
everybody will be beggars here."

The stories of financial ruin have been trickling out all week –
the elderly man who emigrated to Australia, worked hard for 35
years and now faces losing almost all of the €800,000 nest-egg he
deposited in a Cypriot bank on his return; the wholesaler who was
unable to pay the €1 million needed for a huge consignment of
seafood fish that arrived in the port of Limassol, and which
ended up rotting on the dockside.

A drastic reform of the banking system was the condition imposed
by the troika of international lenders – the European Bank, the
European Commission and the IMF – in exchange for granting Cyprus
€10 billion in emergency funding.

The deal, hammered out during marathon talks with Nicos
Anastasiades, the newly-elected president of Cyprus, averted the
risk of the country going bankrupt and crashing out of the euro.

But Cypriots feel it was a betrayal by their EU partners and
reserve particular opprobrium for Germany's Chancellor, Angela
Merkel, and its finance minister,
Wolfgang Schauble.

Berlin is being widely blamed for wanting to impose its standards
of fiscal austerity and probity on Cyprus and of trialling a debt
reduction model that could be applied to other struggling
countries along the Mediterranean littoral.

One Cypriot newspaper said the troika had "pillaged our economy
and desecrated our sovereignty", while another railed against
"the EU vultures".

"Mrs Merkel and Dr Schauble decreed that the Cyprus economic
model was not acceptable," Jim Leontiades, an analyst, wrote in
the Financial Mirror, a Cypriot newspaper. "No other
eurozone country has been required to remodel itself and destroy
its main industry."

Germany, for its part, was reluctant to spend taxpayers' money on
bailing out the large number of Russians who had money in
Cyprus's banks, some of it from shady provenance.

But the introduction of the capital controls was unprecedented in
the 14-year history of the euro, with analysts saying that it was
the sort of thing that usually happened in Africa or Latin
America.

"It's criminal, what they have done," said Carmen, 34, a Romanian
businesswoman who has lived in Cyprus for two years.

"Never have I heard of a country robbing its citizens' bank
accounts like this. There will be trouble for the government over
this. If you live by fire, you die by fire."

Facing a drastic contraction of the economy, many Cypriots say
their only hope now is the development of huge reserves of
natural gas which were found beneath the seabed of the island's
exclusive economic zone, two years ago.

In the bars and coffee shops of Nicosia, where locals puff on
hookah pipes packed with fragrant tobacco, there is constant talk
that the billions of euros to be earned from the gas could be the
salvation of Cyprus.

But exploration is still at an early stage and the gas may not
come on tap until 2018 or 2019. And exploiting it will only
exacerbate Cyprus's already tense relations with Turkey and the
northern, Turkish-occupied portion of this divided island.

Cyprus has been split since Turkey invaded the north in 1974,
after an attempted coup in the Greek part of the island raised
fears in Ankara that the island was about to unify with Greece.

Hopes of a breakthrough in peace talks in 2004 were dashed after
Greek Cypriots rejected a peace plan brokered by then-UN
Secretary General Kofi Annan.

Turkey is deeply unhappy about the prospect of Cyprus exploiting
the gas without its consent, saying that the resources also
belong to Turkish Cypriots. It also lays claim to parts of
Cyprus's EEZ.

"It is not acceptable that the Greek Cypriot side uses the
economic crisis it is facing as an opportunity to create a new
fait accompli," the Turkish foreign ministry said in a
recent statement.

The only acceptable way to exploit the reserves was with "the
clear consent of the Turkish Cypriot side regarding the sharing
of these natural resources."

In Nicosia, there are daily reminders of the tensions with the
Turks. The UN-administered "Green Line" splits the city in two,
making it the last divided capital in the world.

The sound of the muezzin call to prayer can easily be heard in
the Greek half of the city, mosques and minarets loom just across
the rooftops and a giant Turkish Cypriot flag has been etched in
red and white into a nearby mountain side.

Wander through the Greek Cypriot part of the old town in any
direction and within 10 minutes your path will be blocked by sand
bags, razor wire and barricades made of oil drums filled with
concrete.

Bored soldiers with automatic rifles man squat military bunkers.
Painted in the blue and white of the Greek flag, they look out
onto a scruffy no man's land towards the other side of the Green
Line, where the flags of Turkey and the self-declared Turkish
Republic of Northern Cyprus flutter in the wind.

In the dead ground in between there are shattered houses and
shops, their walls pockmarked with bullet holes, their wooden
shutters fading in the sun. Here, time has stood still since
1974.

Some Cypriots see the crippling bail-out deal as a deliberate
attempt by the EU to weaken them and drive them to the
negotiating table with the Turkish-occupied part of the island,
to try to solve the 40-year dispute once and for all.

"There are ulterior motives at work here – other countries want
to get their hands on our oil and gas," said Miltos, a 34-year
old businessman who was waiting anxiously for the island's banks
to open on Thursday after being shut for 10 days to avoid a
massive exodus of funds.

"We have a loan we can't repay. We are going deeper and deeper
into the hole. So we'll have to sell our only remaining asset –
the oil and gas.

"Cyprus is small, the EU can use us as a guinea pig. They can
rape our resources and force us to accept any plan for
reunification."

Cypriots admit that they are partly to blame for the mess they
find themselves in. The country put too much reliance on its
burgeoning financial services sector and its banks were heavily
exposed to debt in Greece.

Islanders have been living beyond their means for years, said Mr
Loizides, the businessman in Nicosia. "But a lot of it was the
banks' fault. A bank called me a while back and said they could
offer me a €6,000 overdraft and €5,000 on my credit card. I
hadn't even asked for it."

As Mrs Charilaou contemplated a tough time for her electronics
shop, she learnt that a pharmacy just round the corner is to
close this weekend.

"They had been in business for 50 years," she said. "A friend of
mine who worked there for 35 years is in tears. We are a laughing
people but I'm afraid that we are going to forget how to laugh."